It seems the ghost of whistleblower complaint has returned to haunt India’s second-largest software exporter Infosys.
A US-based law firm is preparing to drag the Bengaluru headquartered company to markets regulator for, what it believes to be, misleading investors into buying the company’s share through improper revenue recognition.
The application is being filed by Schall Law Firm, a national shareholder rights litigation firm, with the US stock market regulator.
It has filed a class-action lawsuit for violations of 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the US Securities and Exchange Commission.
The applicant has also asked investors who purchased Infosys shares between July 7, 2018, and October 20, 2019, inclusive (the ”Class Period”), to contact the firm before December 23, 2019.
According to the Complaint, the Company made false and misleading statements to the market.
Infosys used improper recognition of revenue to boost short-term profits. CEO Salil Parekh skipped standard reviews of large deals to avoid accounting scrutiny. In fact, the Company’s finance team was pressured to hide details of these deals and other accounting matters from auditors and the Company’s Board of Directors. Based on these facts, the Company’s public statements were false and materially misleading throughout the class period. When the market learned the truth about Infosys, investors suffered damages.
It may be recalled that, in October, Infosys informed the stock exchanges of having received anonymous whistleblowers’ complaints alleging certain unethical practices by the top management.
Infosys Chairman Nandan Nilekani had said the whistleblower complaint dated September 20, as well as an updated complaint, had been received by one of the board members on September 30.
In the letter, dated September 20, and signed by ‘Ethical Employees’, it was alleged that CEO Salil Parikh as well as Chief Financial Officer (CFO) Nilanjan Roy engaged in forced revenue recognition from large contracts not adhering to accounting standards.
The complaints were placed before the audit committee on October 10, and to the company’s non-executive board members on October 11, also the day when Infosys announced its second-quarter results.
US market regulator SEC has also initiated a probe on the matter, while Rosen Law Firm had said it was preparing a class-action suit to recover losses suffered by Infosys investors in the US.
Back home, the Securities and Exchange Board of India (Sebi) had sought additional information from the company, while the National Financial Reporting Authority (NFRA) – part of the corporate affairs ministry – is also looking into alleged accounting lapses at the firm.
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